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I would like to learn more about the SABR model and ho it is used in modeling smiles in equity, FX and rates markets. How would you explain the process and its implementation in simple steps? Any web resource or book that deals with this topic with the perspective of a practitioner? Thanks.

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There are lots of papers online and here are a few I would suggest

math.umn

riskworx

G. Dimitroff, J. de Kock

Nowak, Sibetz

I you have matlab there is an step step example to calibrate SABR model. Since it uses the financial toolbox of matlab for a few functions I dont think you can replicate it in any other language. There must be C++ code available but I did not look for it.

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  • $\begingroup$ The poster asked for a simple explanation... $\endgroup$ – SmallChess Oct 29 '14 at 0:21
  • $\begingroup$ @StudentT .. and resources as well. The first link will give "simple explanation" . If you have a better one please post as answer $\endgroup$ – ash Oct 29 '14 at 9:09
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    $\begingroup$ Does anyone know the derivation of the approximations Sibetz Nowak uses on Slide 34? eg $f-K = sqrt(fK)log(f/K)[1+(1/24)log^2(f/K)+(1/1920)log^4(f/K)]$ It's clearly some kind of series expansion, but I can't seem to find the source. $\endgroup$ – experquisite Jun 1 '15 at 22:58

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